Kerzner International Restructures, But Paradise Lost

Kerzner International, a resort operator based in the Bahamas, underwent a restructuring last week that has paved the way for the transfer of its Atlantis resort in the Bahamas to creditors. New York-based Arcturus Group advised two hedge funds in the settlement. Canyon Capital, based in Los Angeles, and Trilogy Capital, based in Greenwich, Conn., together held roughly $120 million in B-notes that were secured by the resort.

Atlantis Paradise Island.

The updated settlement—revised from an earlier and subsequently blocked agreement that caused those B-note holders to balk—transfers ownership of the resort to a fund managed by Brookfield Asset Management. This resolution follows a rather complicated process that Arcturus co-founder Jonathan Mayblum told The Commercial Observer required an in-depth understanding of the asset in question as well as of the stakes for all involved.

“The first thing it involves is trying to understand what everyone’s ownership in the asset is,” Mr. Mayblum said. “Once you understand that it’s really looking at all the debt holders and understanding their positions.”

In this case, that may have been easier said than done. Some parties owned their stake in the resort at par when it was originally bought, while others had bought in at a significant discount. “And that means that everybody has a different objective as to what they want to accomplish,” Mr. Mayblum explained, “and you have to find if there is some common or middle ground that will accomplish what everybody needs.”

Arcturus was retained by the hedge funds in December 2011, following talks that would have led to Brookfield owning the resort under terms Canyon, Trilogy and other B-note holders found unacceptable. Mr. Mayblum said that Arcturus, a real estate advisory firm, was able to better them.

“It was not necessarily that Brookfield would be a bad owner of the asset,” Mr. Mayblum said. “As a matter of fact the settlement now leads to Brookfield owning the asset. But I would say the new loan is under market rate terms and conditions.” The agreement also includes a settlement.

The Brookfield fund swapped $175 million of debt for Kerzner’s equity interest, according to a release from Kerzner International. Sources said the move was necessitated by the fact that Kerzner’s debt was over leveraged. The company also announced the sale of a 50 percent ownership interest in its Atlantis The Palm resort in Dubai to state-run Istithmar World. It will continue to manage both properties.

“With substantially less debt and a more flexible operating structure, Kerzner is well positioned for sustainable long-term growth as a global management company,” company chairman Sol Kerzner said in a prepared statement. “We are committed to working together with Brookfield Fund, Istithmar and our other partners to continue blowing away our customers at all of our resorts and properties around the world.”